Because small business is a major engine for job creation, creating two out of every three net jobs over the past 15 years, according to the SBA, it’s little wonder that the government provides substantial tax breaks for entrepreneurs. However, because of the complex and convoluted nature of the U.S. tax code, many small business owners may not be aware of the tax benefits they may be eligible to receive.

The following is a list of some of the most widely available tax credits to small business owners:

New equipment – Purchasing new equipment can create a big tax deduction for your business. Businesses can deduct up to $500,000 in new equipment purchases from their tax bill. Business owners can also take advantage of big depreciation deductions in the first two years after they purchase the equipment.

Automobile expense – Personal automobiles used for business, or business-owned vehicles can provide deductions for the costs of keeping it operational and fueling it.

In general, you can deduct two types of automobile-related expenses, a standard mileage rate or actual expenses. Under the mileage system, you can deduct 51 cents per mile for every mile driven and also deduct tolls and parking costs. With the actual expense method, you can claim deprecation in value and also bills for actual business-related automobile expenses. With either system, it’s important to keep good records of mileage and expenses in case you’re audited.

Start up costs – New business owners can deduct up to $10,000 in capital costs when they start up their business. This deduction can be spread out over five years if it is advantageous to the business owner.

Legal and professional fees – Money you pay to attorneys or accountants can be deducted in the year which they occur. Business owners can also deduct the cost of certain books, such as those that can help you with certain business issues, such as accounting or law.

Interest expenses – If you take out a loan or use a credit card to help finance your business, you can deduct the interest expense from your businesses taxes. Again, it is important to keep financial records and documentation if you intend to use this tax deduction.

Business travel – Trips made for business purposes can have tax deductible expenses. When traveling on business, you can deduct plane fare, hotel accommodations, meals, laundry, communications and some other expenses from your taxes. You can only deduct your expenses or those of employees, however.

Unpaid debts – If a customer does not pay for goods you sold him or her, you can deduct the cost of the product from your taxes. You cannot deduct the cost of services to clients who do not pay their debt to your business, however.

Entertainment – Small business owners can deduct up to half the cost of entertaining business clients or contacts. Business owners should be careful to keep receipts and document who they have with them when they’re entertaining, however. Also be wary of the line between personal and business entertainment expenses, as getting a little careless of the expenses you claim could trigger an audit.

Taxes – There are a number of taxes you can deduct from you federal tax bill. Business owners can deduct sales taxes paid on supplies or equipment, real estate taxes and excise and fuel taxes. Some states allow business owners to deduct their federal tax liability from state income taxes.

Software – Business owners can deduct 100 percent of the cost of new software in the first year after it’s bought, and gradually declining amounts over five years. Because software can be a frequent cost to businesses, as programs are often updated and re-released, taking advantage of this tax break can be a big benefit for small businesses.

As you can see, there are a number of ways you can reduce your tax bill by taking advantage of tax exemptions offered by the government. Keeping accurate, organized records of all your business expenses is key to taking advantage of these deductions, however.

If you’re not confident of your ability to identify these deductions, consult with a professional accountant. They can help find the deductions you’ve earned and greatly reduce your overall tax burden. Remember that tax rules change frequently – sometimes from year to year – so check IRS news and others sources of tax information frequently to see if there are any new opportunities for your business to save tax dollars or any changes that my throw a kink into your operations.

If your business is located in your home, you may be able to deduct some of your home expenses – costs such as rent or depreciation, utilities, insurance premiums, property taxes – from your federal taxes. In general, the IRS allows qualifying home businesses to deduct a pro rata – that is a share proportional to the area used for business – of these expenses from your federal taxes.

Basic requirements

The IRS has a pretty broad definition of home, defining it as just about any type of dwelling where you can sleep and prepare meals, so this can include houseboats, apartments, mobile homes, campers, etc. Simply put, if you live there, it’s your home.

Aside from the definition of “home,” IRS rules about the home business deduction are pretty tight. When deducting expenses for a home business, you must regularly use part of your home exclusively for business and be able to prove that you use your home as your principal place of business, regularly meet customers there or use a separate structure on your property for business purposes.

You are only allowed to deduct home business expenses if you have space in your home that is completely dedicated to business use. For example, if you have a spare room that you use exclusively for an office, chances are very good that you can claim that room for the home business deduction. If you occasionally use your kitchen table to set your business laptop on while your work, chances are you can’t claim the kitchen for the home business expense.

There are exceptions to the exclusive use rule. If your business use for a portion of your home is for storing inventory or product samples, or if you’re running a qualified day care center, the exclusive use rule does not apply.

You may not always be able to claim storage area as a home business deduction under the exemption, however. If you have an off site office or place of business, you may not claim storage area under the home business deduction. Also, to take the deduction, your items must be stored in a specific part of your home.

Once you meet the exclusive use threshold, you still must meet the principal place of business requirement. To successfully claim the home business deduction, your home must be your principal place of business, meaning that nearly all of your business activities are conducted there. You are allowed to meet clients or customers outside your home and still claim the deduction.

Calculating your home business expenses

Once you’ve established that your qualify for the home business exemption, you’ll need to calculate the costs that you can deduct from your taxes. You won’t be able to deduct all the expenses of your home, just those related to the operation of your business.

First, you’ll need to calculate the percentage of your home used for business, using either the square footage method or number of rooms method. The square footage method requires you to divide the square footage of the area of your home used for business by the area of the entire house. For example, if you live in a 1,000 sq. ft. home and use 100 sq. ft. for business, you’d divide 100 by 1000 and get .1, meaning that you use 10 percent of your home for business.

Under the number of rooms method, if your home has five similarly sized rooms and you use one for business, you would divide 1 by 5 to get .20, meaning that you use 20 percent of your home for business.

Once you have your area percentage, you may use it to determine what portion of your home expenses are deductible from your federal taxes. Home expenses fall into three categories: unrelated expenses, direct expenses and indirect expenses.

Unrelated expenses are home expenses unrelated to your business and cannot be deducted. For example, you cannot deduct the cost of a new bed or repainting your children’s room.

Direct expenses can be deducted entirely. Direct expenses may include things such as the cost of installing new carpeting or ceiling fans in the business area.

Indirect expenses are expenses that affect the entire residence, a portion of which you may deduct. Indirect expenses include rent, utilities, insurance, etc. This is where the business percentage calculation comes in handy. If your rent is $500 per month, and you’re using 20 percent of your home space for your business, you may deduct $100 per month ($1,200 per year) from your taxable income. You may also apply this calculation to other expenses, such as insurance, property taxes and utilities.

In case the IRS has questions about your use of a home business exemption, you should keep records to document the use of your home as a place of business. You should take pictures of the area used as an office, have a diagram of your home’s floor plan showing the designated business area, have a log of the times you are in the business area of your home, and have your business mail sent to your home address.

Even if you don’t qualify for the home business exemption, there are other costs you can deduct from your federal income taxes, such as your business-related phone costs, office supplies, furniture for your home office, etc.